European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 1126: Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy

Laurent E Calvet (), Laurent Bach and Paolo Sodini

Abstract: This paper empirically investigates the portfolios of wealthy households and their implications for the dynamics of inequality. Using an administrative panel of all Swedish residents, we document that returns on financial wealth are on average 4% higher per year for households in the top 1% compared to the median household. These high average returns are primarily compensations for high levels of systematic risk. Abnormal risk-adjusted returns, linked for instance to informational advantages or exceptional investment skill, contribute only marginally to the high returns of the wealthy. Implications for inequality dynamics and public policy are discussed.

Keywords: Household finance; inequality; risk-taking

JEL-codes: D12; D31

57 pages, December 20, 2015

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